The Outrageous P250m Engelbrecht Scheme

Preliminary findings on the affairs of the consolidated estate has details of how Eune Engelbrecht has been named as the controlling mind behind the formation and the running of the business, which comprises Bluthorn Fund Managers (Proprietary) Limited, Bthorn (Proprietary) Limited, Bluthorn Holdings (Proprietary) Limited, Bluthorn Procurement Solutions (Proprietary) Limited and Prime Employee Benefits (Proprietary) Limited . However, liquidator Kopanang Thekiso, who prepared the report, said Engelbrecht did not do this alone but was assisted by Jeffrey Sibisibi. Sibisibi was instrumental as he roped in a number of key players to the Group. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="3" ] For instance, Thekiso has mentioned the appointment Joseph Mosimane as the Chief Executive Officer of the group of companies in the Consolidated Estate and the appointment of an independent director, being Alfred Mokone. Thekiso found that when the companies in the Consolidated Estate went into financial difficulties, Sibisibi’s shareholding was “transferred” to his daughter, Kelebogile Sibisibi, who stays out of the country. Sibisibi claimed he had acquired shareholding through ‘sweat capital’. The value was not disclosed but it appears it was transferred to the daughter without any value. Simulated process By doing so, Thekiso concluded that this transfer was a simulated process intended to deflect and create an impression that Sibisibi was no longer involved. In reality, he found that Sibisibi continued to benefit both in terms of monthly payments to his account and was provided with a house to live in. The report states that the Consolidated Estate's corporations were simply established as distinct legal entities for legal and regulatory purposes. However, in practice there was no separation between them and they were handled and governed as a single entity. The setup of the companies was such that the various companies could be regarded as divisions or departments within the same company, BFM, with BFM taking deposits and PEB and BPS being the retail end of the business. Thekiso found that several agreements were signed between the group of companies within Consolidated Estate to legitimise certain transactions. “These will need to be reviewed in detail, as the same officers in BFM (e.g. Tiyedze Kamodi and Motlamedi Matome) were also signing on behalf of the various companies in the Consolidated Estate, even though they were technically employed by BFM,” he wrote. “The shareholders, directors and management of the companies in the Consolidated Estate demonstrated that they were not conversant with the regulatory framework within which the companies needed to operate especially in the business of collective investment undertaking,” he added. CIU Act As a result, he said, they had a completely different approach to running BFM from what the law and the regulators expected. Documents show that BFM was registered as an Investment Company with Variable Capital under the CIU Act but was operating as a deposit taking and micro lending entity, basically operating as a bank. “The prospectus provided to NBFIRA by the officers of BFM which was used to market its products to the public significantly misrepresented BFM’s actual activities,” Thekiso said. Furthermore, said the liquidator, BFM did not have a custody agreement with any custodial service provider, which is a serious breach of the CIU Act. It appears NBFIRA was provided with an unsigned “contract” between BFM and First National Bank Custodial Services and inexplicably accepted the document as a basis for licencing. According to Thekiso’s findings, the senior staff at the companies in the Consolidated Estate were clearly unsophisticated as they lacked technical expertise and relevant financial experience to be occupying the positions they were appointed to in executing their duties. “As a result, all they did was take instructions from Engelbrecht and his appointed associates from South Africa (who we are not sure what their role was) without applying any due diligence or commercial sense,” he said, noting that “the senior staff failed to differentiate which companies in the Consolidated Estate they actually worked for as they assumed roles and duties in respect of companies which they were not employed by”. The liquidator found no investment committee in the true sense as required by the CIU Act. Instead, a group of these same members of staff were put together and named as the BFM investment committee. Investigations found no processes, policies or guiding principles governing the so-called investment committee. No minutes Further, there were no minutes, resolutions or evidence of assessments to any of the investments made by BFM. Thekiso established that all the funds collected by BFM were simply transferred to PEB for them to run the micro-lending business. “The funds received by BFM were not treated as capital or equity investments by the owners of the funds, but rather they were treated as if they were funds lent to BFM both in terms of how these were accounted for and how they were utilised,” said Thekiso, adding that the funds were not separately invested and tracked. “None of the investors in BFM ever received statements demonstrating how their investments were performing.” In the accounting books of BFM, the investments were simply reflected as trade liabilities of BFM as opposed to invested capital. As a result, Thekiso said it was not possible to see from the books that the investments were not performing as expected. Astonishingly, he found that the expenses of the companies in the Consolidated Estate were paid out of invested funds from creditors instead of revenue earned by BFM or other group companies. The funds ‘invested’ in PEB were on-lent to other companies. Control of the PEB debtors’ book was at best poor or otherwise deliberately set up to allow for fraudulent movement of funds, Thekiso said. There are no records of collection efforts and no assessments of recoverability of the various debts. Open-ended contracts At some stage, Thekiso said, Mrs Kamodi (who was the Finance Manager of BFM) unilaterally decided to appoint her own personal company to assist with collections because she was apparently worried about the potential losses which could result from bad debts. “Significant amounts of funds were lost through what we termed as ‘internal companies,’” Thekiso concluded. These internal companies received long term funding from PEB with open-ended contracts which have proven difficult to enforce. Almost all these internal companies have ceased trading and have been deregistered at the Companies and Intellectual Property Authority’s company registry. Furthermore, the loans to these internal companies were not secured by personal sureties/guaranties, which did not bode well in protecting the interests of the creditors as the chances of recovering the outstanding loans have proven futile. Coincidentally, investigations found that directors and officers of the companies in the Consolidated Estate were placed as shareholders and or directors in these internal companies. Thekiso said actual control of funds that flowed to the internal companies seemed to have been controlled by some expatriate consultants whose engagement contracts with the companies in the Consolidated Estate were known only by Eune Engelbrecht and his mother, who was the Group HR head. Irrational “It is very clear that the directors and officers of the companies in the Consolidated Estate were either confused by the funding arrangements or that they took advantage of the funds being in their control without adequate controls to monitor them,” Thekiso chronicled. “It seems likely that a lot of the funds were channelled to companies and accounts locally and in South Africa to extract funds out of the Consolidated Estate given statements from the owners of these internal companies.” In addition, the salaries of the main officers, e.g. Mr Mosimane and Mr Matome, were significantly increased in an irrational and unbusinesslike manner, which Thekiso said did not follow a normal practice of performance-related pay increases. Appointments made to the boards of the various companies and shareholding of those companies in the Consolidated Estate were done by Eune Engelbrecht without any considerations to the fiduciary duties required in terms of the Companies Act. Thekiso concluded that the companies in the Consolidated Estate were simply being used as a conduit to receive deposits and transfer funds to internal companies. “This activity was not represented in the BFM prospectus as it was akin to the business of a bank,” Thekiso said, adding that the business of Consolidated Estate orchestrated through Mr. Engelbrecht and various role players were inherently a Ponzi scheme that ultimately ran its course to the detriment of the creditors. [/ihc-hide-content]

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The Outrageous P250m Engelbrecht Scheme

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